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Western Companies See Sanctions Shadow Over Them
March 28, 2014 17:07

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It’s not only Russian officials and individuals with close ties to the Kremlin who have been punished for Moscow’s incorporation of Crimea. Western companies could be feeling the heat of the battle of words, too. And that’s something the business community is very much afraid of.
According to Eckhard Cordes, President of the Committee on Eastern European Economic Relations, a weaker Russian economy would have an impact on the EU economy, too.
Many consultants working in Russia have admitted they are getting more requests from Western clients on what’s next for their operations in Russia. Some of the businesses have put their investment project on hold and many more fear a further deterioration of the investment climate and weakening of the rouble. They’ve been spooked by a possible seizure of foreign assets in Russia in case the EU goes ahead to introduce harsher economic sanctions.
For example, British BP owns a 20 percent stake in Rosneft, Russia’s biggest oil producer, which accounts for more than 30 percent of BP’s oil and gas production in the 4Q of 2013. BP refused to comment on possible effects on sanctions. Another major corporation, France’s Danone, operates more than 20 factories across Russia, accounting for 11 percent of the global sales of the dairy manufacturer. Italy’s ENI is the largest corporate customer of Gazprom, Russia’s natural gas giant, covering 18 percent of Italy’s needs. Other EU states like Austria and Romania depend on Gazprom even more.
While car sales in Europe went south, Western manufacturers invested heavily into the Russian market. In 2008, Renault bought a 25 percent stake in AvtoVAZ for $1 billion, aiming for a bigger stake by mid-year. They acknowledge the Russian market is still far from saturated and any sanction could jeopardize their plans to capitalize on its future growth.
In 2012, General Motors pledged $1 billion in investment to bring its production capacity to 350,000 units a year while VW promised to build an engine plant worth $1.25 billion. Last year, Ford Sollers announced an investment of $274 million into an engine factory in Tatarstan.

France’s Societe Generale owns Rosbank, which brought 1.42 billion in profits in 2013. Many global banks, like Morgan Stanley, Deutsche Bank and Goldman Sachs, that have been arranging IPOs for Russian companies have a lot to lose in case of a severe rupture in ties between Russia and the West. 

Author: Mikhail Vesely

Tags: Russian economy Ukraine crisis Crimea   

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